After seizing five oil fields and Iraq’s biggest dam, Sunni militants bent on creating an Islamic empire in the Middle East now control yet another powerful economic weapon — wheat supplies.

Fighters from the Islamic State have overrun large areas in five of Iraq’s most fertile provinces, where the United Nations food agency says around 40 per cent of its wheat is grown.

Now they’re helping themselves to grain stored in government silos, milling it and distributing the flour on the local market, an Iraqi official told Reuters. The Islamic State has even tried to sell smuggled wheat back to the government to finance a war effort marked by extreme violence and brutality.

International officials are drawing uneasy comparisons with the days of hardship under dictator Saddam Hussein, when Western sanctions led to serious shortages in the 1990s. “Now is the worst time for food insecurity since the sanctions and things are getting worse,” said Fadel El-Zubi, the U.N. Food and Agriculture Organisation (FAO) representative for Iraq.

While Iraq faces no immediate food shortages, the longer term outlook is deeply uncertain.

Hassan Nusayif al-Tamimi, head of an independent nationwide union of farmers’ cooperatives, said the militants were intimidating any producers who tried to resist.

“They are destroying crops and produce, and this is creating friction with the farmers. They are placing farmers under a lot of pressure so that they can take their grain,” he said, adding that farmers had reported fighters were also wrecking wells.

Many farmers have joined the hundreds of thousands of Iraqis who have fled the Arab and foreign fighters’ advance. Those who remain have yet to be paid for the last crop, meaning they have no money to buy seed, fuel and fertilisers to plant the next.

The statistics following the jihadists’ lightning advance across northern Iraq in June are grim both for the government in Baghdad and a population that needs reliable food supplies.

Iraq’s trade ministry says 1.1 million tonnes of wheat it bought from farmers this harvest season is in silos in the five provinces. This represents nearly 20 per cent of annual Iraqi consumption which the U.S. Department of Agriculture (USDA) puts at around 6.5 million tonnes, roughly half of which is imported.

Amidst the chaos of northern Iraq, it remains unclear exactly how much wheat has fallen into rebel hands, as the government still controls parts of the provinces.

However, a source at the Agriculture Ministry confirmed the size of the problem. About 30 per cent of Iraq’s entire farm production, including the wheat crop, is at risk, the source said, requesting anonymity.

Jihadi Business Dealings

The Islamic State already has extensive business dealings. It is selling crude oil and gasoline both in Iraq andSyria, where it is fighting President Bashar al-Assad’s forces to create a cross-border caliphate.

So far, it has largely used energy and food resources under its control as a fund raiser rather than an instrument of siege, selling instead of withholding them.

A senior Iraqi government official told Reuters that the militants had seized wheat in recent weeks from government silos in the provinces of Nineveh and Anbar, which both border Syria.

These included 40,000-50,000 tonnes taken in Tal Afar and another Nineveh town, Sinjar, where tens of thousands of local people from the Yazidi religious minority have fled the militant onslaught to a nearby mountain range.

Hassan Ibrahim, Director General of the Grain Board of Iraq, said the Islamic State had tried to sell wheat stolen from Nineveh back to the government via middle men in other provinces. “For this reason I stopped purchasing wheat from farmers last Thursday,” said Ibrahim, whose Trade Ministry body is responsible for procuring wheat internationally and from local producers.

Bread prices are stable in Baghdad due to imports and crops in areas still under government control. In Baghdadand nine other southern provinces, the Trade Ministry has bought nearly 1.4 million tonnes from farmers this season.

It is not clear whether the government’s import needs will rise dramatically, given that it will probably not try to supply areas no longer under its control.

Unpaid Farmers

Iraq’s wheat harvest began in May, the month before the Islamists and their allies launched their assault, taking the cities of Mosul and Tikrit in days when resistance from thousands of U.S.-trained government soldiers collapsed.

The harvest begins in the south and moves north, meaning that farmers began delivering wheat to government silos in rural areas around Mosul in early June, less than two weeks before militants stormed the city.

Zubi said the government usually pays the producers two months in arrears. Therefore an estimated 400,000 farmers are living under the militants with no hope of being paid for the wheat they delivered before the offensive. “No farmer received his money,” he said, meaning they will not be able to start planting in the seeding season that begins as soon as next month in some areas. “This is their sole income.”

The FAO is urgently working to get 3,000 tonnes of wheat seed to the farmers for planting, he said, though this effort faces major problems due to the security situation. Seed deliveries are vital for ensuring that fellow U.N. agencies such as the World Food Programme, which are already helping hundreds of thousands, are not saddled with feeding yet more Iraqis.

John Schnittker, a former USDA economist who advised the Trade Ministry for three years before USDA pulled its staff out of Baghdad in 2012, said a number of factors would “severely test” the ability of farmers in northern Iraqto grow their wheat crops to be harvested next year.

These included threats to irrigation water due to the militants’ control of the Mosul dam, the government’s inability to get fertiliser and fuel to farmers in areas under the Islamic State, and the fact that many producers fled their homes.

He expected a “lower planted area and lower yields” for the 2014/15 harvest. “It’s very likely to be disrupted because of the conflict.”

Meanwhile, the “public distribution system” – the government’s means of supplying subsidized flour and other goods such as vegetable oil, sugar and rice – has broken down in militant-held areas.

Although the system is corrupt and wasteful, impoverished Iraqis depend on it. Schnittker said its breakdown poses a “huge hardship” to northern Iraq’s rural population and would eventually push more people into refugee status.

(Maggie Fick reported from Baghdad and Cairo; Additional reporting by Sarah McFarlane and Jonathan Saul in London; Editing by Michael Georgy and David Stamp)